Lincoln National

Ticker: LNC, Buy below $66.

Lincoln National is a Fortune 250 American holding company, which operates multiple insurance and investment management businesses.

Why I Would Buy

  1. Cheap – LNC is currently selling for > 8x trailing earnings and forward earnings.
  2. Below Book – The stock can be purchased below it’s book value (P/B: 0.93).
  3. Return on Equity – RoE has been at a high single digit level for the past decade.
  4. Low Payout Ratio – The dividend is a respectable 2%, but a payout ratio below 20% affords plenty of opportunity for future dividend growth.
  5. Strong Buyback – Management has announced an aggressive share buyback program, which is likely to be accretive to shareholders given the low valuations of the stock.

What Could Go Wrong

  1. Credit Rating – Long term debt of LNC is rated BBB+ by S&P, I would’ve liked higher ratings.
  2. RoE – Although decent, consistent double digit returns would’ve made the stock more attractive
  3. Relative Valuation – Not particularly cheap when compared to other large life insurers.

 

Disclosure: I am long LNC, please read additional disclosures here before taking any action based on this post.

 

Scotia Bank

Ticker: BNS, Buy below $60.

Bank of Nova Scotia is a major Canadian multinational bank.

Why I Would Buy

  1. Cheap – BNS is currently selling for 11x trailing earnings and 10x forward earnings.
  2. Dividend – Pays a 4+% dividend, while maintaining a payout ratio below 50%.
  3. Return on Equity – RoE has been consistently at high teens for the past decade.
  4. High Credit Ratings – Strong investment grade credit ratings on long term debt (A+ by S&P). I like strong long term debt ratings, as it is an indicator of the longevity and sustainability of earnings.
  5. Geographically Diversified – in addition to Canada, the bank has significant revenue streams emanating from Caribbean and Latin American countries.

What Could Go Wrong

  1. Recent Stock Issuance – BNS issued a large amount of stock recently to fund an acquisition, it may or not be accretive.
  2. Trade War – Looming trade war could hurt emerging markets that BNS is exposed to.
  3. Relative Valuation – Not particularly cheap when compared to other large banks e.g. JPM.

WPP PLC

Ticker: WPP, Buy below $90.

WPP is a multinational advertising and public relations company based out of London.

Why I Would Buy

  1. Cheap – WPP is currently selling for < 10x earnings.
  2. Dividend – Pays close to 5%, while maintaining a payout ratio hovering around 40%.
  3. Return on Equity – RoE has been above 10% for past decade, and above 15% for past 3 years.
  4. Beaten Down – Beaten down due to uncertainties surrounding the departure of the founder-CEO, and also due to several major accounts coming up for renewal this year.
  5. Globally Diversifiedhas significant revenue streams emanating from every major and developing economy around the world.

What Could Go Wrong

  1. Account Renewals – Several large global accounts are up for renewal this year, just lost one of these (HSBC). If several others are lost, will hurt revenues grievously.
  2. Debt – Several large recent acquisitions were financed via debt, if revenues taper due to any reason; it could snowball into a major problem.
  3. High Beta – Advertising and media spend are strongly correlated to global economy, and is first spending to be cut in a downturn.

Disclosure: I am long WPP, please read additional disclosures here before taking any action based on this post.

TCP Capital Corp.

Ticker: TCPC, Buy below $16.

TCP Capital Corp is a Small-Cap Business Development Company that is focused on middle market lending.

Why I Would Buy

  1. Dividend – Yields over 9%. This dividend is well covered by Net Investment Income (110% dividend coverage in 2017).
  2. Insider Trends – Officers has been aggressive buyers for last 12 months, especially so within the last 3 months.
  3. Credit Ratings – TCP Capital’s debt is rated investment grade, a testament to the company’s strong balance sheet.
  4. Cheap – TCPC currently trades below its book value.
  5. Fee Structure – TCPC has one of best advisory fee structures in the BDC industry, its base and incentive fee compensations are shareholder friendly.

What Could Go Wrong

  1. High Beta – BDCs like TPC that serve the middle markets are strongly correlated to the domestic US economy, and will suffer disproportionately in an economic downturn.

 

Disclosure: I am long TCPC, please read additional disclosures here before taking any action based on this post.

Hersha Hospitality Trust

Ticker: HT, Buy below $18.

Hersha Hospitality Trust is a small cap REIT focused on hospitality industry.

Why I Would Buy

  1. Cheap– Trailing P/AFFO: < 9x.
  2. Insider Trends – Management has been aggressive buyers for last 12 years, especially so in the last 3 months.
  3. Dividend – Currently yields over 6%. This is well covered by Adjusted Free Flow from Operations (AFFO), the payout is less than 55%!!
  4. Buyback – A recently announced buyback would retire 13% of outstanding shares.
  5. Below Book –Hersha trades below 80% of book value.

What Could Go Wrong

  1. High Beta – The Hotels industry is strongly correlated to the overall economy, and would suffer disproportionately in a downturn.
  2. Industry Trends – Home rental services are potentially disruptive trends for the hospitality industry, the full extent of impact is indeterminate.

Disclosure: I am long HT, please read additional disclosures here before taking any action based on this post.